We maintain our Neutral recommendation on the U.S. based casino operator Las Vegas Sands Corp. (LVS). Although Las Vegas Sands’ strong brand name and expansion strategy will bode well for future growth, an uncertain economic condition and heavy reliance on debt financing remains a spot of bother for the company.
Why the Reiteration?
Las Vegas Sands, the leader in the gaming and lodging industry, is well poised to grow with the gradual economic recovery. Apart from the U.S. and Chinese markets, the company is venturing into new emerging markets for further expansion, which would help it to withstand any regional downturn.
With the rise in gaming volume as well as significant contributions from the other non-gaming components, the company continues to register higher revenue growth at its Macao properties. Currently, it generates over 80% of its revenues from this region. Moreover, we believe that Sands Cotai Central project in Cotai Strip, when complete, will represent a significant expansion of the company’s Macao presence and will drive its visitation, moving forward.
The company’s business in the Las Vegas market seems to be gaining traction after a weak quarter. With the rise in leisure demand, the visitation pattern in the resort city is improving. This Zacks Rank #2 (Buy) company is also concentrating on the renovations and promotions of its Las Vegas properties in order to augment its performance, going ahead.
Moreover, the company’s business at Marina Bay Sands in Singapore appears to be stabilizing. Mass revenues are showing signs of improvement following the company’s new marketing programs and higher traffic growth.
Despite improving revenue growth prospects, the high debt level keeps us on the sidelines.
Moreover, we are skeptical about the successful completion of the company’s European integrated resort project -- EuroVegas -- in Madrid, Spain as it is subject to various terms and conditions of the government. Moreover, the company’s recent suspension of a high-rise residential condominium tower in the Las Vegas Strip can weigh on the company’s margin side in the coming quarters.
Las Vegas Sands’ upcoming project at Cotai in Macao will be up against other U.S.-based casino operators such as Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM) that are also constructing casinos on the Cotai Strip. These new openings may restrict the company’s market share in the region, going ahead.
Other Stocks to Consider
Another stock from the same industry with a favorable Zacks Rank is Monarch Casino & Resort Inc. (MCRI) carrying a Zacks Rank #1 (Strong Buy).
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